What should I do with 30k?

[AustinOverton]

So, I will be 18 soon and will have access to my savings which are currently in low risk investments and total about 30k. I want this money working harder for me.

Here is my situation, I will be a senior in high school when I turn 18 and will be heading off to college next summer. So, it might not be best for me to start a brick and mortar business with the money yet. Should I put it into higher risk stocks or maybe put it as a down payment for a mortgage and get into the real estate market? I'm very knowledgeable with websites and could probably put some of the money into a nice website and use quite a bit for affiliate marketing which sounds pleasing to me.

What should I do? What would you do?

[radreality]

First of all, are all the taxes current on the money?

if you're knowledgeable about websites, I would say that you should take a little bit of it 5k or so and play around with some ideas.

The remaining 25k in my opinion should be used towards real estate. Either buying yourself a home or buying an investment property. If you are going off to college, a home for yourself might not be the smartest thing right now. You can flip houses for immediate returns or you can buy rental properties for a little cash flow and some equity. In your position I personally would buy a rental property, just because you will be pre-occupied with school and other stuff that 18 year olds do.

But that brings up a problem. You are 18, no credit history. If you have had a good paying job for the last 2 years, that will help, but you'll still run into a problem. I would at least look into it though.

A better option might be to just take the money and put it into some moderate investments, and hopefully make some money; until you have enough credit history, credit score, and income to be able to purchase a house.

I also posted this article on my website: What should I do with 30k?

______________________________
Robert Falk
Business Developer / Investor
Self Help & Success Forum

[jasaunders]

If you don't know what to do with the money, then it should remain in safe investments. By safe, I don't mean a .5% savings account, you could easily invest in money market, CD's, bonds and stocks and make 5-10% return annually. When you figure out what you want to do, then use the money.

You are going to be throwing away the money if you use it now "just because you have access to it". Wait until something you enjoy and have confidence in comes along and invest in that. Don't put it in riskier investments or start a venture just because you can.

[roadtoharvard]

Want a 7% guaranteed ROI (current can bus prime + 1%)? If are getting student loans pay them when they come due. This is the equivalent interest rate you will be saving by paying your loan(s) (assuming rates stay constant which they probably won't). It's tax free too . One could argue about the benefits of interest payments being tax deductible but fresh graduates rarely benefit from the tax savings because they don't have high enough incomes for the tax savings to take effect. If they do benefit they would have to do the analysis themselves to see the costs/benefits.

In the mean time (4 year college degree) I would just plop it into something guaranteed. GIC, High yield savings account, MM whatever has the best interest rate taking into account fees and taxes and pay the loan once graduated.

Assuming no tax bite or fees, Emigrant direct is offering 5.05% APY. FV of $30,000 at the end of 4 years monthly compounded (I didn't find their compounding period so for the example I'll assume monthly) would give you $8,689.24 in interest on your investment. Not too bad. You could use that interest to start a business once graduated.

I would probably do what I wrote previously except that I would put the interest earned yearly into a few index funds. Anyway, to each his own.

[buynick]

ING.com has a money market account that's currently yielding 4.5%. Completely safe and completely liquid.

[xcbellx]

I would suggest buying a condo or small rentable house near the campus that you're going to attend. You can rent out rooms while at school and rent out the home when you leave.

[Young Spark]

I'd either suggest 1 of 2 things:

1. As stated in the post above mines... you could always invest your money into a rental property. The benefit of this is that it'll provide you a good monthly income. The downside, since technically its a rental property, you'd be responsible for any fixings needed, property taxes or anything along them lines. The tenant doesn't own the home or rental property, if my mind serves me right, you'd be responsible for handling all that. I may be wrong so someone correct me if I am.

2. Invest in a REIC... they usually have a good return rate but weigh the REIC, does it satisfy what your looking for, is it going to give you a good return, what's the risk ratio... etc. I know some pay out 7.5% (or more) annually. Investing $10k of that $30k could yield you $750 more a year, and imagine what it'd be like if you compounded it.

I would do the math for you on number 2 but I have to leave right now, maybe when I get back later.

[radreality]

1. As stated in the post above mines... you could always invest your money into a rental property. The benefit of this is that it'll provide you a good monthly income. The downside, since technically its a rental property, you'd be responsible for any fixings needed, property taxes or anything along them lines. The tenant doesn't own the home or rental property, if my mind serves me right, you'd be responsible for handling all that. I may be wrong so someone correct me if I am.

Thats why you budget the yearly numbers, not just the monthly numbers. You have to buy a house where there is enough cash left over after paying the mortgage to save a little towards any repairs that might be needed and also some towards the property taxes each year. A lot of people end up getting out of rental properties just because they don't like it because they didn't plan well enough; and they bought houses where the numbers didn't fully workout.


______________________________
Robert Falk
Business Developer / Investor
Self Help & Success Forum

[AustinOverton]

I do plan on spend 5k of that on websites and affiliate marketing. I am really really considering rental properties also and if I must maybe I'll have one of my parents co-sign the loan.

I really appreciate all of your advice. Also, I'm not 100% sure on the taxes of the money. It is being handled by a local investment firm and I would like to assume they are taking care of all that.

[roadtoharvard]

Ok, my take on the suggestion of Real Estate:

Can he qualify for a mortgage with a reasonable interest rate with his level of income or will he have to obtain something that is sub prime? My guess is if he qualifies at all it will be for a variable rate sub prime loan. Can he afford the payments on a sub prime mortgage? Can he afford interest rate risk on his mortgage? What will his down payment be? Remember that he has to cover inspection costs, closing costs, Realtor fees, property taxes as well as have sufficient cash flow to cover vacancies, repairs, litigation, insurance, mortgage payments and the litany of pain in the ass things that come with owning property. I'd be willing to wager his 30k will get eaten up quite fast. Saying get enough cash flow to cover these expenses is one thing but actually doing it is another. Is your typical tenant a college student? What happens in the down months where they flock home? Have you factored in a higher vacancy rate due to this?

Besides the biggest problem i see is him not having any experience. If he doesn't have any then he's just a babe in the woods waiting to get slaughtered. I'm for owning property when it is appropriate but in this case I would advise against it.

[crackah]

Buy a house, or some shares

[roadtoharvard]

2. Invest in a REIC... they usually have a good return rate but weigh the REIC, does it satisfy what your looking for, is it going to give you a good return, what's the risk ratio... etc. I know some pay out 7.5% (or more) annually. Investing $10k of that $30k could yield you $750 more a year, and imagine what it'd be like if you compounded it.

I think what you're referring to is a REIT. A REIT is a Real estate investment trust. Basically it serves as an efficient way for a company (the trust in this case) to pass on it's income (and tax liability) to its unit holders in form of monthly disbursements . There are a wide variety of REITS ranging from seniors housing, storage facilities, apartment complexes, commercial real estate, hotels etc. It is a viable way to hold real estate in a portfolio. Keep in mind with a higher yield comes higher risk. What is your risk tolerence? Consider whether or not a high yield is sustainable or are disbursements greater than available trust income? Another problem lies in the fact that there has been a large run up in REITS in the last few years. I know the Canadian REIT index is up about %19.01 in the last 5 years. Does capital appreciation matter or are you just looking for an income stream? These are things you have to consider with your investment objectives.

Again, my suggestion would be to pay off your student debt and put the interest you earn in the mean time in a variety of low cost ETF's (Vanguard is a good choice if you're in the US with their rock bottom MRE's). The allocation is up to you but there is no reason why exposure to Real Estate through a REIT index cannot be included in a portfolio.

On a side note: Income trusts were all the craze up here in Canada for awhile and everyone flocked to them. A whole bunch of companies were converting to their form as it saved a ton of taxes but the government changed the tax rules. Down went the trusts and the hogs along with them

[AustinOverton]

roadtoharvard you have a lot of great advice, thanks!

As for paying off student loans. I won't have any by the time I'm finished with college. I almost have my freshman year of college knocked out for free thanks to dual enrollment. And my college is fully paid for thanks to Florida's PrePaid College Program. Also, if things go as planned I will have a scholarship or two to back me up when I graduate high school next year though I'm not counting on them.

I feel if I do well with affiliate marketing with the initial money I put into and I get a good method set up to where I'm at a 2:1 to 3:1 on my investment into the marketing then I will use the rest in that. 3:1 is actually the norm for affiliate marketing.

My main concern is wanting a brick and mortar investment. By that I mean I want some kind of income stream that isn't from the internet. Whether this entails getting into Real Estate or even becoming a small angel investor if that is the correct terminology.

[sniping4dummies]

Hi Austin,

Congratulations on the 30k! I know you want to use it wisely, and from someone who has been there (and made some major budgeting mistakes), Your best bet is to take a good chunk of that change ($5k-10k) and like some other members have suggested, play with it. Put a little bit of money into several ideas (online would be the easiest medium) and see what sticks.

The real estate market right now is really too volatile to get into as far as buying properties, but there are several ecourses out there that can get you registered as a realtor for $300-$400. This way, you can get your feet wet in the way the market works before spending too much money.

Also, make sure you DON'T do anything like buy a new car, expensive electronics, etc.! You're much better off hanging on to the money until the right moment comes than by buying into consumerism. Play it smart, don't blow your money on one idea, and be a cheap date!

Good luck!

[Young Spark]

I think what you're referring to is a REIT. A REIT is a Real estate investment trust. Basically it serves as an efficient way for a company (the trust in this case) to pass on it's income (and tax liability) to its unit holders in form of monthly disbursements . There are a wide variety of REITS ranging from seniors housing, storage facilities, apartment complexes, commercial real estate, hotels etc. It is a viable way to hold real estate in a portfolio. Keep in mind with a higher yield comes higher risk. What is your risk tolerence? Consider whether or not a high yield is sustainable or are disbursements greater than available trust income? Another problem lies in the fact that there has been a large run up in REITS in the last few years. I know the Canadian REIT index is up about %19.01 in the last 5 years. Does capital appreciation matter or are you just looking for an income stream? These are things you have to consider with your investment objectives.

Actually I meant what I said (REIC.) If you haven't heard of these (there are a few around here) -- it is simply investing your money into a club that purchase rehab projects. What your money goes towards specifically depends on whether the home has already been purchased or not. Some requires atleast $5k-$10 dollars of investment... that money is gone towards purchasing a rehab project and then the home is constructed up from the investment money.

Whatever the return is on the sale is divided out amongst the investors. Its quite a complicated process, but if a REIC has its first goal of $110k to invest into a rehab project and all the fixing up it needs (which in return will value a sale that goes for $250k) --- assuming there is 10 investors each donating $10k and the club owner themselves throws in the other $10k ... each investor (including the club owner itself) would get in return approximately $22k each ($22k * 11 = $242k) --- the remaining portion would roll into the next project.

So technically thats a 200%+ gain which really isn't all that bad if it takes maybe 3 months to complete one (assuming.)

I know this because I've done research with how some of the clubs around here work (right now I am in Delaware spending time with family and this is the area they are in.)

So not really all that bad.

Can he qualify for a mortgage with a reasonable interest rate with his level of income or will he have to obtain something that is sub prime? My guess is if he qualifies at all it will be for a variable rate sub prime loan. Can he afford the payments on a sub prime mortgage? Can he afford interest rate risk on his mortgage? What will his down payment be? Remember that he has to cover inspection costs, closing costs, Realtor fees, property taxes as well as have sufficient cash flow to cover vacancies, repairs, litigation, insurance, mortgage payments and the litany of pain in the ass things that come with owning property. I'd be willing to wager his 30k will get eaten up quite fast. Saying get enough cash flow to cover these expenses is one thing but actually doing it is another. Is your typical tenant a college student? What happens in the down months where they flock home? Have you factored in a higher vacancy rate due to this?

This is a simple response for me... ready... who says he has to qualify for a mortgage?

Let's go through the list of fee's and eliminate a few things shall we:

If its one thing I learned from cash flow notes, its that there are FSBO's and Owner-Financing (or Seller Financing, same thing) as some call it. This simply put is where the owner of a home owner-finances (the carry back a promissory note) on the entire home sale... this eliminates the first thing: Realtor Fees. How? As many realtors won't tell a client about owner-financing because the realtor won't get any commission if a client knows. Therefore if a home seller knows about owner financing, only thing I believe they need is a lawyer for the entire process.

Remember that he has to cover inspection costs, closing costs, property taxes as well as have sufficient cash flow to cover vacancies, repairs

Next: closing costs... this is something typically handled by the seller I do believe (I may be wrong so don't hold me to that.) So this wouldn't be Austin's problem... it would be the responsibility of the seller to pay the closing costs when a homeowner is owner financing the note.

Remember that he has to cover inspection costs, property taxes as well as have sufficient cash flow to cover vacancies, repairs

Property taxes IS the responsibility of the home buyer if they are renting the property out... BUT if they are selling the home and owner finance the home, the new buyer pays the monthly fee to the seller BUT the new home owner (the buyer) pays the property taxes.

To understand what I said, here is an example. Let's say I have a home for sale and I owner finance it to Austin. Austin decides to rent it out instead of re-selling it and creating another owner-financed note (the original seller would still have priority over Austin to receive his monthly payments.)

If Austin rents it out for 1/2 PLUS the monthly income he has to pay on the note, he'll be making a little moola. For instance, I amortized the schedule to receive $800 a month as part of the owner financed deal, so Austin rents the home out for $1,200 ... he's able to pay me my $800 and keep $400 a month for himself. BUT HE HAS TO PAY THE PROPERTY TAXES SO DEDUCT SOME ANNUAL REVENUE FOR THAT.

On a side note: If Austin owner finances the property, he receieves the payments... BUT, just like above, whatever I amortize his schedule for, he has to pay me that amount... any difference he can keep himself.

In this instance, we remove property taxes.

Remember that he has to cover inspection costs, as well as have sufficient cash flow to cover vacancies, repairs

That includes the three above as well as the insurance... so really you just eliminated 2-3 things there.

Its all about finding creative ways. He could make a $600 investment (pay off a tax lien) and if he doesn't receive his $600+ interest back from the homeowner... he owns the property free and clear of any mortgages or liens. Quite the concept if you ask me.

So yes, really, real estate STILL is a good thing to get into, doing some research will expose the endless possibilities.

Key topic of this entire post: Owner-Financing and FSBO's... its your way to real estate investing.